Exchange of Notes Protocol of 1981

NOTES OF EXCHANGE (PROTOCOL)

THE EMBASSY OF THE UNITED STATES OF AMERICA
Kingston, July 17, 1981.

Rt. Hon. EDWARD P. G. SEAGA,
Minister of Finance and Planning, Government of Jamica,
Kingston, Jamaica.

DEAR Mr. MINISTER: I have the honor of commenting on the Protocol signed today amending the Convention between the Governments of the United States of America and Jamaica for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes on Income, signed on the 21st day of May, 1980 (“the Convention”). The following understandings with respect to the Protocol were reached between the two Governments.

1. During the discussions of Article III of the Protocol, the Jamaican delegation expressed concern about possible implications of new Article 17 (Limitations on Benefits) contained in Article III with respect to investments that might be made in Jamaica by residents of third countries. The United States delegation assured Jamaica that the purpose of new Article 17 is to deny benefits under the Convention where residents of third countries use the Convention with a principal purpose of obtaining U.S. or Jamaican tax benefits that such persons would not otherwise be entitled to, not to impede investments in Jamaica by residents of third countries.

In order to assure that the objectives of new Article 17 are met, the delegations of the United States and Jamaica agreed that the requirements of paragraph 2 of Article 17 are satisfied and that benefits are not denied under Article 17 in particular circumstances. The particular circumstances are where a company resident in Jamaica and owned by individual residents of third countries derives income with respect to which the company claims U.S. tax benefits under the Convention, the company does not use such income in the manner described in paragraph 1(b) of Article 17 and:

(i) the company is engaged in business operations in Jamaica and the income with respect to which the company claims U.S. tax benefits is incidental to or derived in connection with the business operations in Jamaica; or

(ii) the individuals owning the company are residents of countries that have income tax conventions in force with the United States and, pursuant to such conventions, the individuals would have been entitled to U.S. tax benefits the same as, or substantially similar to, the U.S. tax benefits claimed by the company under this Convention, had the individuals earned the income directly.

This agreement between the delegations is reflected in paragraph 3 of new Article 17. Paragraph 3 is not intended to suggest that the requirements of paragraph 2 cannot be met in other circumstances, nor to limit the factors that may be taken into account in determining whether “the acquisition, ownership or maintenance of such person and the conduct of its operations did not have as a principal purpose obtaining benefits under this convention,” as provided in paragraph 2.

2. During discussions involving the Protocol, the delegations of the United States and Jamaica noted the past and present cooperation between the United States and Jamaica on legal assistance in criminal matters, including fiscal crimes, and the willingness of the United States and Jamaica to enter into negotiations designed to enhance and formalize that cooperation through modern treaties on extradition and mutual legal assistance on criminal matters.

Accept, Mr. Minister, the renewed assurances of my high consideration.

(s) Loren E. Lawrence.
MINISTRY OF FINANCE AND PLANNING,

Jamaica, l7th July, 1981.

HIS EXCELLENCY
LOREN LAWRENCE,
Ambassador of the United States of America.

EXCELLENCY: I have the honour to acknowledge receipt of your Note of the 17th of July, 1981 which reads as follows:

“I have the honour of commenting on the Protocol signed today amending the Convention between the Governments of the United States of America and Jamaica for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, signed on the 21st day of May. 1980 (“the Convention”). The following understandings with respect to the Protocol were reached between the two Governments.

1. During the discussions of Article III of the Protocol, the Jamaican delegation expressed concern about possible implications of new Article 17 (Limitations on Benefits) contained in Article III with respect to investments that might be made in Jamaica by residents of third countries. The United States delegation assured Jamaica that the purpose of new Article 17 is to deny benefits under the Convention where residents of third countries use the Convention with a principal purpose of obtaining U.S. or Jamaican tax benefits that such persons would not otherwise be entitled to, not to impede investments in Jamaica by residents of third countries.

In order to assure that the objectives of new Article 17 are met, the delegations of the United States and Jamaica agreed that the requirements of paragraph 2 of Article 17 are satisfied and that benefits are not denied under Article 17 in particular circumstances. The particular circumstances are where a company resident in Jamaica and owned by individual residents of third countries derives income with respect to which the company claims U.S. tax benefits under the Convention, the co pany does not use such income in the manner described in paragraph 1(b) of Article 17 and:

(i) the company is engaged in business operations in Jamaica and the income with respect to which the company claims U.S. tax benefits is incidental to or derived in connection with the business operations in Jamaica; or

(ii) the individuals owning the company are residents of countries that have income tax conventions in force with the United States and, pursuant to such conventions, the individuals would have been entitled to U.S. tax benefits the same as, or substantially similar to, the U.S. tax benefits claimed by the company under this Convention, had the individuals earned the income directly.

This agreement between the delegations is reflected in paragraph 3 of new Article 17. Paragraph 3 is not intended to suggest that the requirements of paragraph 2 cannot be met in other circumstances, nor to limit the factors that may be taken into account in determining whether “the acquisition, ownership or maintenance of such person and the conduct of its operations did not have as a principal purpose obtaining benefits under this Convention,” as provided in paragraph 2.

2. During discussions involving the Protocol, the delegations of the United States and Jamaica noted the past and present cooperation between the United States and Jamaica on legal assistance in criminal matters, including fiscal crimes, and the willingness of the United States and Jamaica to enter into negotiations designed to enhance and formalize that cooperation through modern treaties on extradition and mutual legal assistance on criminal matters.”

I have the honour to confirm that the foregoing understandings are in accord with the view of the Government of Jamaica and are approved by it.

Accept, Excellency, the renewed assurances of my highest consideration.

(s) Edward P. G. Seaga,
Prime Minister and
Minister of Finance and Planning.